Gold Forecast: XAU/USD refreshes multi-month tops, $1,900 eyed ahead of FOMC minutes

Update: Gold rallied over $35 from daily swing lows and shot to the highest level since January 8, around the $1,886 region during the early North American session. A selloff in the global equity markets provided a strong lift to traditional safe-haven assets and assisted the precious metal to attract some dip-buying near the $1,852 region.

The supporting factor, to some extent, was offset by a goodish pickup in the US Treasury bond yields, which allowed the US dollar to stage a modest recovery from multi-month lows. This might act as a headwind for dollar-denominated commodities and cap the upside for gold. Investors might also be reluctant to place any aggressive bullish bets, rather prefer to wait on the sidelines ahead of Wednesday's release of the FOMC monetary policy meeting minutes.

From a technical perspective, a sustained break through the $1,874-75 strong horizontal resistance was seen as a fresh trigger for bullish traders and contributed to the intraday move up. This might have further set the stage for an extension of the appreciating move and push gold back towards the $1,900 mark.

Update: Gold price is on a corrective decline ahead of the FOMC minutes showdown, having refreshed three-month highs at $1874 earlier on. The market mood remains sour amid inflation fears and covid flareups in some nations, boosting the safe-haven US dollar. The uptick in the Treasury yields is also weighing on gold price.

Markets eagerly await the release of the FOMC April meeting’s minutes for fresh hints on the central bank’s monetary policy path, which is likely to have a significant impact on gold price.

Update: Gold witnessed a modest pullback on Wednesday and dropped to two-day lows, around the $1,854 region during the mid-European session. A goodish pickup in the US Treasury bond yields turned out to be a key factor that prompted some profit-taking around the non-yielding yellow metal amid slightly overbought conditions on short-term charts. In fact, the yield on the benchmark 10-year US government bond climbed further beyond the 1.65% threshold, which allowed the US dollar to reverse an early dip to over four-month lows. This was seen as another factor that acted as a headwind for the dollar-denominated commodity.

Meanwhile, the intraday retracement slide from the highest level since late January seemed rather unaffected by a turnaround in the global risk sentiment. This was evident from a sharp fall in the equity markets, which tends to benefit traditional safe-haven assets, including gold. The downside, however, is likely to remain cushioned amid expectations that the Fed will keep interest rates low for a longer period. Hence, the key focus will remain on the minutes of the latest FOMC monetary policy meeting held on April 27-28. This makes it prudent to wait for some strong follow-through selling before confirming that gold has topped out in the near term and positioning for any meaningful corrective fall.

Update: Gold’s price tends to rise when the real yields of US government bonds fall and vice versa. In the view of economists at Capital Economics, the real yields of long-dated Treasuries are set to rise, subsequently, XAU/USD should retreat during the remainder of this year.

“While the recent rebound in the price of gold may owe something to greater demand for safe havens in response to faltering equity prices, as well as to cryptocurrencies coming under pressure, most of it can probably be explained by a marked pull-back in the real yields of long-dated Treasuries after their surge earlier this year. We doubt the pull-back will last, though, and are sticking to our forecast that the price of gold will end 2021 at $1,600/oz.”

Read more: Gold’s outlook depends heavily on what happens to the real yields of long-dated Treasuries

Update: Gold remained confined in a range for the second straight day and consolidated its recent strong gains to the highest level since late January. A modest uptick in the US Treasury bond yields was seen as a key factor that capped the upside for the non-yielding yellow metal and led to subdued price action around the $1,870 region. Investors also seemed reluctant to place any aggressive bets amid slightly overbought conditions and preferred to wait for Wednesday's release of the FOMC meeting minutes.

That said, a combination of factors helped limit the downside. The US dollar refreshed multi-month lows amid growing market conviction that the Fed will keep interest rates low for a longer period. This was seen as a key factor that extended some support to the dollar-denominated commodity. Apart from this, a generally softer risk tone also acted as a tailwind for traditional safe-haven assets, including gold. Nevertheless, the bias remains tilted in favour of bullish traders, though it will be prudent to wait for some follow-through buying before positioning for any further appreciating move.

Update: Amid overbought conditions on the daily time frame, Gold price has stalled its uptrend, as investors turn cautious before placing any fresh bets. Market participants also remain unnerved ahead of the much-awaited FOMC April meeting’s minutes due later this Wednesday, as growing inflation concerns continue to drive the sentiment around gold price. Meanwhile, the latest bounce in the US dollar amid a downbeat mood limits the gains in gold, with the buyers failing to find a strong foothold above $1870 once again. Gold is currently trading at $1868, marginally lower on the day. Gold price hit a new three-month high of $1874 a day before.

Read: April FOMC Minutes Preview: Can there be one monetary policy for inflation and jobs?

Gold prices have been on the bid towards the middle of the week, ending on Wall Street some 0.12% as measured by XAU/USD.

The US dollar has been out of favour with the bulls and fell on Tuesday for the fourth straight session.

As measured by the DXY, the index, which is a measure of the USD vs a basket of currencies, fell to the lowest level since late February.

The dollar index DXY was last down 0.46% at 89.781.

 The markets are less fearful that the Federal Reserve will act upon risks to higher inflation and raise interest rates sooner than anticipated.

Meanwhile, US Treasury yields have stalled. The 10-year yield on Tuesday was ending the North American session down by 0.72% falling from a high of 1.657% to a low of 1.627%.

Several Fed policymakers slated to speak this week at the same time that the Fed is due to release the minutes from its April policy meeting on Wednesday, all of which will be parsed for any signs of a shift in its economic outlook.

The easing of measures to contain the pandemic have lifted higher-risk assets and counterintuitively, precious metals as well, as the greenback, melts away, giving was to higher beta currencies, such as the Aussie, that stand to benefit most from economic revival.

With investors sounding the alarm over inflation, institutional interest in the precious metals complex is likely to continue rising following months of outflows, analysts at TD Securities argued.

TD Securities expects this period of high inflation to prove transitory, but there remains a substantial amount of uncertainty surrounding the path for inflation.

''Nonetheless, gold is also underperforming against periods of high inflation, which fuels our conviction for upside risks in the yellow metal,'' the analysts said.

As for positioning,  money managers ultimately increased their net length.

The US jobs market recently disappointed in the Nonfarm payrolls print and analysts at TD Securities argued that this catalyzed a round of algorithmic short-covering, helping prices to break out north of the $1800/oz range. ''At the same time, we've noted that the composition of gold flows is changing, highlighting that discretionary capital could once again be flowing into gold.''

Previous Updates

Update: Gold (XAU/USD) reverses the early Asian session gains, stays around the late January high tested the previous day, while easing to $1,869 as markets in Tokyo open for Wednesday. Although S&P 500 Futures weigh on gold prices, with 0.30% intraday losses by the press time, broad US dollar weakness keeps the commodity buyers hopeful.

Behind the gold’s latest moves could be fears of the Indian variant of the coronavirus (COVID-19) and the cautious sentiment ahead of the US Federal Open Market Committee (FOMC) meeting minutes. Also, mixed sentiment concerning the Fed’s next move amid relfation fears add to gold traders’ confusion. Hence, gold bulls need upbeat FOMC minutes and trade-positive sentiment to keep the recent gains.